Dear homebuyers,
A recent NAR Settlement has changed the rules for agents representing buyers. In short, any agent showing homes to a buyer must now have a written agreement with that buyer prior to viewing homes in person or virtually. This is a nationwide change, so every agent in America will need to have this conversation beginning no later than August 17th, 2024.
If you are not have this conversation with your agent, they are not telling you something.
While the news is big and has very real implications for the industry, I am here to tell you that a competent agent like myself can help explain the details of this change in a way that is easy to understand and give you the confidence to pursue your home buying dreams.
First, let me tell you about the way things used to be to get an idea of where we are coming from to arrive at this new way of home buying. Prior to August 17th, 2024 buyers were not compelled to have any kind of written agreement with their agent regarding compensation in order to tour homes. In fact, compensation between home buyers and their agents was seldom discussed. Previously, an agent representing a buyer could easily look up a property on the MLS (Multiple Listing Service) and see that a seller was offering compensation of 2.5% to 3% of the final purchase price for completing a successful purchase with the buyer they represented. This of course encouraged buyers and their agents to tour homes without necessitating the discussion regarding compensation. Agents understood that they would be rewarded for their work at the completion of a successful sale. There was generally no prerequisite to see a home and buyers were not faced with having to pay their agents for services rendered.
In this arrangement, the conversation regarding compensation was had between the home seller and their agent. The listing agent would offer their services for a fee of 5% to 6% to the home seller and offer half of that fee to a buyer’s broker to incentivize real estate agents and their qualified buyers to tour their home and ultimately buy the home.
Enter the NAR settlement.
As a result of a lawsuit against that National Association of REALTORS, rules for entering information into the MLS (Multiple Listing Service) have changed and the rules for agents engaging with buyers have changed. I’ll explain.
- The MLS can no longer advertise the compensation being offered to a buyers agent/broker. This diverges from the conspicuous offer of compensation previously visible to agents and the public alike. However, compensation can still be advertised on other platforms (websites, listing signs, listing flyers, etc.)
- Buyer’s agents must now enter into a written agreement with their buyers for compensation with the following criteria prior to viewing a home in person or virtually:
- Specific and conspicuous amount of compensation.
- Compensation that is objective; not a rate that says “whatever the seller is willing to pay” for instance.
- A term prohibiting the mount from being greater than the agreed to rate.
- A conspicuous statement that brokers fees and commissions are fully negotiable and not set by law
While these changes are simple in their terms, they can feel daunting to homebuyers that are faced with record low inventory, record high prices, higher interest rates, buyer competition from wall street and now have to think about what they have to pay their agent before they even go see a place.
The friction to homeownership is palpable, no doubt.
Nevertheless, I would like to assuage your fears by letting you know that a good agent like myself can help you navigate these waters with utmost transparency and maintain a level of service consistent with the fiduciary duty that we must still uphold as REALTORS and service professionals in the real estate industry.
From my perspective there are few things I must do right now. First, let me show you the forms that the California Association of Realtors have provided us to satisfy these new requirements for touring homes with buyers:
- Property Showing and Representation Agreement: Generally this document would be presented by an agent to a buyer that is not yet committed to just one agent and is often determining which agent they prefer to work with.
- It is a non-exclusive relationship and limits the total number of properties shown to three and limits the duration of the agreement to 30 days.
- Cancellation of the agreement can be effective upon receipt of notice from the one party to another.
- Buyer Representation and Broker Compensation Agreement: This agreement is generally entered into between buyers and the agent they have committed to work with on either an exclusive or non-exclusive basis.
- Rather than just three properties, it can cover a more expansive area that a buyer may be interested in acquiring a property and can specify more parameters about that property type as well.
- The agreement can be for up to 3 months.
- Cancellation of the agreement is effective immediately for non-exclusive relationships and 30 days after receipt for exclusive relationships.
- The agreement has a continuation period that provides for broker compensation for any property that a buyer buys for which there was broker involvement.
- In general this document conveys a more detailed commitment between buyer and the agent/broker representing the buyer.
You might say to yourself “Ok thanks Erick, but it looks like I still have to pay you something. Right?”
In short, yes, I earn the agreed to fee when we complete the purchase of a home that we identify specifically or broadly in either of these forms. However, payment does not necessarily have to come directly from you my dear buyer.
Both of these agreements provide for outside parties to compensate me and my broker for the services outlined in that agreement. At no point will you be unaware of who will pay for my services before your transaction is completed. In fact, you will know before our offer is even accepted. The California Association of REALTORS purchase agreement form provides a space for us to negotiate my compensation directly with the Seller. It would be my goal to negotiate that the seller pay the fee stated in our agreement.
As a listing agent myself, I am also tasked with educating my home sellers about these changes to the rules while still providing them with sound advice to market their home effectively and procure qualified buyers for their home sale. This includes informing them about the fact that most, if not all, buyers agents will be seeking compensation directly from the seller to help homebuyers achieve homeownership in light of these new rules and methods.
Is it conceivable that you will be faced with paying some or all of the agreed to fee if you decide to proceed with the purchase of the home? Yes, there are scenarios that can arise where the seller pays part of my compensation and there would be a balance to pay through escrow in the form of a closing cost.
Whatever the case may be, we have the ability to pursue further negotiations or back out of the transaction if the terms are not agreeable.
I want to make it clear that licensed agents like myself work for a fee and I would like the privilege to earn that fee for my services. I hope that this explanation will help you begin to understand the nature of these changes and will encourage you to engage with me for a no obligation consultation to help you get started on the path to homeownership. It costs nothing to call me and meet with me to discuss these topics further and get you started on that precious path to homeownership.
Please contact me with any further questions or concerns. That’s still free. Thank you for reading.
